Many business leaders are apprehensive about keeping their accounts. Yet this discipline is the keystone of business management. Controlling it is essential to better monitor and improve the financial health of the company. To do this, it is important to know what accounting is and its roles.

Definition of accounting

Accounting is a discipline that involves organizing the financial data of the business. A real management tool, this technique makes it possible to assess the company's financial situation, analyze its performance and anticipate any difficulties.

Accounting encompasses a set of processes such as:

• receipt of accounting documents;
• their recording and filing;
• the establishment of accounting documents;
• the calculation of the various balances;
• the production of the company's financial statements.

Accounting roles

A FINANCIAL INFORMATION TOOL

Accounting has an informational role. At the end of each financial year, it produces three mandatory summary documents known as the annual accounts. They consist of the balance sheet, the income statement and the appendix. In addition, it may at any time draw up provisional statements called “intermediate accounting statements”. These statements allow managers and partners (investors, bankers, employees, etc.) to find out about the company's financial health and measure its performance.

A DECISION SUPPORT TOOL

A true instrument of analysis, accounting is an essential tool for decision-making. She allows to:

• calculate and analyze costs;
• draw up a provisional financing plan;
• analyze interim management balances;
• etc

Thus, accounting provides managers with reliable indicators that will be useful to them in setting up a business strategy.

THE IMPORTANCE OF ACCOUNTING

As you have understood, accounting holds a prominent place in the life of a company. She allows to:

• calculate the costs to assess the profitability of each activity;
• find out about the profitable and loss-making posts;
• draw up a provisional budget;
• monitor all cash inflows and expenses on a daily basis;
• have a 360° view of the company's economic situation.

Accounting principles

The main objective of accounting is to transmit reliable economic and financial information. To do this, it must respect a set of rules: accounting principles. Ten in number, these principles guarantee the quality and compliance of accounting. It's about:

• principle of continuity of operation: the company is supposed to continue its activity at the time when it draws up its annual accounts;
• principle of independence of fiscal years: the company is required to link each accounting transaction to the fiscal year that concerns it;
• principle of historical costs: items are recorded at their acquisition cost, without taking into account the discounting of values ​​over time;
• principle of prudence: it encourages not to transfer present uncertainties to future exercises.
• principle of consistency of methods: the company must always adopt the same accounting methods for each fiscal year;
• principle of relative importance: the company must take into account and recognize the elements that influence the financial statements for the year and can leave out those that are not significant;
• principle of good information: the accounting documents must provide sufficient and significant information to facilitate the understanding of the annual accounts;
• principle of non-compensation: no compensation can be made between the assets and liabilities of the balance sheet as well as the income and expenses of the income statement;
• principle of pre-eminence of reality over appearance: transactions are to be presented in accordance with their nature and their economic and financial reality;
• principle of intangibility of the opening balance sheet: the opening balance sheet of an accounting year must be similar to the closing balance sheet of the previous year.

The different types of accounting

There are several forms of business accounting:

• general accounting;
• cost accounting;
• budget accounting.

General accounting is mainly aimed at external users such as investors and banks. It gives a picture of the company's financial situation.

As for cost accounting, it informs managers about the profitability of the company's business segments. It thus makes it possible to better control costs in order to optimize profitability.

Finally, budget accounting aims to establish provisional budgets. It consists of comparing the figures achieved and those estimated in order to then propose measures for improvement.

Single-entry or double-entry bookkeeping

There are two methods of recording accounting entries:

• single-entry bookkeeping;
• double-entry bookkeeping.

In single-entry bookkeeping, a transaction is recorded in a single account. Less used, it makes a distinction between income and expenditure and calculates the balance between the two. It is therefore presented in the form of a table with two columns, one to describe the economic event and the other to indicate the quantified amount.

Double-entry accounting, on the other hand, consists of recording a transaction on two accounts at the same time. For the same amount, the entry is credited to one account and debited to another.

Documents required for accounting

Legislation requires the company to produce certain accounting documents and keep them to guard against unexpected tax audits. These documents are:

• the journal which records transactions chronologically;
• the general ledger which takes up the journal entries to classify them according to the accounts concerned;
• the inventory book which lists the assets and liabilities of the company's assets recorded during an inventory.

The history of accounting: its origins and its evolution

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